Stock Market Investors » Glossary of Stock Terms » What is a 401 k Plan?

What is a 401 (k) Plan?

401 k plans represent a type of a retirement plan that is offered by almost all employers to their employees. If you participate in such a plan you are allowed to make monthly contributions from your salary. The good thing about such retirement plans is that the contributions are invested in a plan, which provides you with returns.

The contributions you make are pre-tax. Therefore, you enjoy a lower income tax. The plan usually includes different mutual funds to which employees can allocate their money.

An increasing number of employers have started to provide matching of contributions. Another benefit of 401k plans is that deposits and earnings made are deferred from taxes until you decide to withdraw the money from the account.

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